EMI’s CEO, Elio Leoni-Sceti, recently stated that “seventy percent of music consumption is digital and yet only about twenty percent of music company revenues are derived from digital.”

It is likely that 80% of record label sales are derived from products that are having rapid sales declines. This disconnect will not be sustainable long term.

So, what can the record labels do to capture more sales for products that people are actually buying? First of all, the labels need to be on the cutting edge of technology and know how their clients consume music. Morgan Stanley recently made headlines for an article written by a teenage intern about the non-use of Twitter by teenagers. It took the media world by storm yet I doubt it was news to teenagers.

How many teenage interns do you think the labels have working for them?

Second of all, the labels must rapidly diversify away from selling records, either digital or physical. If there is a value-ad to the artist, the label will be able to make money. So far, it seems as though the labels only value-ad is still the record.

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Erik
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And herein lies the trouble. The superstar artist of the past lived extravagantly off money from the record label (that the artist had to pay back through tours and record sales). The artist of today is fronting the bills himself (or together as a band).

So, are the record labels still necessary to reach superstardom? According to Trent Reznor of Nine Inch Nails, the answer is yes:

“To reach that kind of critical mass these days you need old-school marketing muscle and that only comes from major labels. Good luck with that one.”

And IODA chief Kevin Arnold had this to say on the topic:

“But I don’t know if anybody could say that there’s any mainstream artist that does have a lasting credible brand that has done it on their own.”

I have the feeling that this will continue to change so that in the very near future, Do It Yourself artists will be able to reach higher levels than they have in the past due to the increasing ease of distribution through internet channels. However, as noted in the last blog, the competition will continue to increase. Setting your band apart and living extremely frugally will likely be the keys to success in this new age.

Stay tuned,
Erik
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In the article, David Segal notes that Jackson reached worldwide fame and popularity in a simpler time. The album was still king. MTV was pretty much the only medium where teenagers watched music videos. And the record labels still had a strong hold on the music that made it to the record stores.

Contrast that with today’s artists. The album is no longer king. Jackson sold 100 million copies of just one of his albums – Thriller. Now, and artist is extremely lucky to sell just 1 million albums. MTV was huge for Jackson. Now, MTV rarely plays music videos and most people are watching videos on YouTube. And with the proliferation of the internet, the user now has control of the playlist instead of the radio station or record store.

Basically, the mass media outlets are being replaced by silos of taste. As noted above, the consumer makes the choice. This does not bode well for the superstars. Top artists will still make their way out of the fold through word of mouth, but I don’t think we will ever see another artist like Michael Jackson.

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Erik
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Now, it seems that labels are looking more for artists who are already matured with a fan base. The labels then come alongside the artist and offer to push them along. One big difference is money – labels don’t have much and therefore can’t bankroll albums and tours. And another difference is the digital media revolution that allows artists to accomplish tasks formerly reserved for the record labels (recording, gathering a fan base, etc.)

This is true of two rappers that have started to make it big through grassroots online networking and marketing. The first rapper, named Drake, currently has the #2 song on Mediabase’s Urban chart and the #3 hit on Hit-Rhythmic, all without the backing of a major label. The other rapper, Kid Cudi, has the #6 song on Hit-Rhythmic, “Day ‘N’ Nite” and is about to sign with Universal Motown. “Day ‘N’ Nite” has had over 44 million plays on MySpace. Once popular online, both rappers were fought over by the labels.

My further question to all of this is why these guys then decide to sign with the labels. They gathered a following online, which allowed them to begin touring and making guest appearances with big acts. What do the record labels come in with that attracts these guys? Obviously money, but what are they offering that these guys can’t do on their own? They certainly can’t promise loads of money from record sales. Perhaps they can offer help in touring and merchandise. But, then it seems that a Live Show production company like Live Nation would be better suited for this role.

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Erik
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So, what will the record labels do with their core business? They usually don’t have the corporate structure to initiate 360 deals with artists. So, how can they capitalize on a product with double digit declines? One idea being seriously discussed is the concept of the living album. The idea is that the labels take the album experience to the next level. A living album would include the music, but would create an interactive experience around that music that would have

Other discussions are focusing on new ways to sell music. One way is to sell streaming music plans. Users would have access to an entire music company’s library for a monthly price. Other ideas are ad-supported plans and cloud-based services. Problem is that most of these ideas have been tried on a limited basis and have not taken off according to expectations.

Stay tuned,
Erik
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Well, that equation has been disrupted. First of all, cd sales are down and the labels don’t have as much money to initially invest in a band. Secondly, up front costs don’t need to be as high as they were in the past. There are more outlets for bands to promote for close to free and to record for much cheaper.

The comment is interesting in this context because Metallica had the luxury of reaping enormous benefits from the record labels. They now have devoted fans and enormous notoriety all around the world. They could go completely in house with their business from now on and probably come out ahead by owning everything.

The question still remains for the up and coming artist. Where do they get the seed money to record an album, purchase equipment, load up on merchandise, and hit the road? I recently attended a music biz discussion where the artist Corey Smith was one of the panelists. He said that he did everything as cheap as he could from recording to tour expenses. This created an atmosphere where he was not as desperate for money, was able to hold more ownership of his songs, and was able to develop on his own.

An added benefit of this strategy is that bands need to be touring to make money to fund other parts of the band. This in turn builds a fan base and hones musical skills.

Even though the pool is full of artists, it has never been easier to take the entrepreneurial route as an artist.

Stay tuned,
Erik
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“Trade analog dollars for digital pennies.”
- Jeff Zucker

This says a lot about the current state of the music industry. Record labels that spent vast amounts of money promoting, recording, and building artists are faced with a world where they can no longer charge the money necessary to recoup these costs. So, we now have artists who have done their work without the help of labels who no longer need to recoup enormous initial investments and can therefore sell for “digital pennies.” Their strategies have been more grass roots. They have used the power of the internet. And they may not have the reach that a record label could have provided, but they don’t necessarily need that reach to make ends meet.

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Erik
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• Universal – 31.52% (down from 31.9% in ’07)
• Sony – 25.3% (up from 24.97% in ’07)
• Warner – 21.38% (up from 20.28% in ’07)
• EMI – 8.97%, (down from 9.37% in ’07)

Independent labels decreased to 12.83% market share from 13.48% in ’07.

Universal maintains its leadership. It is possible that they will see gains this year as they continue to expand their international presence.

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Erik
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I am curious to see how this will change the game. This scenario seems to happen a lot. The labels pressure new start ups to change or die, and then end up signing agreements with them. If the other labels sign agreements with Project Playlist, I am sure they will be allowed back on the MySpace Music site. If not, it will be interesting to see the future of Project Playlist with only one major label on board.

Another issue at stake is what happens with any additional licensing deals. We saw that MySpace Music caved into pressure and took away a social networking device (Project Playlist), which is at the core of their business model, in order to appease the labels. Will the same happen with Project Playlist signing deals with the major labels? Will we begin to see their business being affected by what the labels want as opposed to what the consumer wants?

Stay tuned,
Erik
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The site has a dual purpose. The obvious one is to be a hub for information and content for EMI artists. The second purpose is to be a huge data gathering pool. In the words of Alex Haar, VP Digital Special Projects at EMI, “EMI.com is designed to be a learning lab. It will help us gain even more knowledge about consumer preferences and choices.” There is only so much information EMI can learn from Google as to who is searching, and the how, why’s and what’s. But with their own site, they own the information and control it.

But will this consumer information be beneficial? How valid is the data? For instance, what is the difference between a consumer doing a google search for music and one who specifically goes to the EMI website to do the search. On the one hand, the person doing the google search may be unaware of the fact that EMI is the label for a particular artist. The person going right to EMI might have more knowledge of the artist already.

The other question is if they can use the data collected to drive sales. I’m sure they will gather some great consumer information, but can they translate that into increased purchases? And is that even the right measurement? What if their site drives more fan interest that manifests itself into more concert attendance for the artist? EMI might not be interested in that kind of notoriety for the artist as they don’t make as much money, if at all, on tours, unless there is more of a 360 deal with the artist.

I think this is a great move on EMI’s part, albeit about 10 years too late. I will be interested to see if this site really takes off or if current sites like iTunes, Amazon, and some of the big social networking sites play a bigger role. These sites offer information about all artists, EMI’s site only about EMI artists. If they can generate exclusive content and be known for doing so, there is a good chance for success. They should be able to do so since they have the inside track on all of their artists.

Stay tuned,
Erik
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